October 1, 2015 / 5:00 AM / 4 years ago

Coal threatens Poland's image as European role-model

* State-controlled coal mining firms losing money

* Politicians avoid much-needed restructuring

* Poland’s reputation at risk

By Marcin Goettig

WARSAW, Oct 1 (Reuters) - Coal mining has taken centre stage in the campaign for this month’s parliamentary election in Poland, an outsize political role that threatens the country’s hard-won economic growth and reputation in Europe.

Once a pillar of the communist-era economy, coal mines escaped the “shock therapy” that helped turn Poland into one of the European Union’s most resilient economies and a role-model for the rest of the bloc in investors’ eyes.

Successive governments have shrunk the sector, but kept it in state hands, conscious of public support for the miners, whose predecessors lost lives opposing martial law in 1981 and helped overthrow communism.

The mines have lost more than $850 million since the start of 2014 as coal prices slipped to decade lows, and efforts to prop them up have brought Poland into conflict with the European Union on both competition and environmental grounds.

The bloc wants to cut carbon dioxide emissions by at least 80 percent by 2050, and the highly polluting Polish hard coal sector will come under further scrutiny with the approach of talks on a global climate deal in late November.

The likely winners of the Oct. 25 election say they will fight harder to stop environmental curbs and protect the 96,000 remaining mining jobs, just over half the total in 2001.

It is a policy likely to transfer any burden from loss-making mines to the budget, state-owned utilities or consumers.

Even the more reform-minded current government has dodged thorough restructuring, fearing miners’ strikes would cost them votes.

The total lost by the mines since the start of 2014 is half of what all Polish businesses invested in research and development in 2013 and some analysts say the country is squandering its reputation as well as its money.

“Poland has slowly but truly started to be a role model not only for new EU member states but also for the entire EU,” said Matthias Siller, emerging Europe equities manager at Baring Asset Management in London.

“The way policies are going in Poland right now is endangering this big opportunity.”


Average coal and lignite output per employee in Poland is about 1,250 tonnes per year, around a tenth of that in the United States, a difference only partly explained by the fact that Polish coal deposits are much deeper.

Faced with the prospect that Kompania Weglowa, the European Union’s largest coal miner, could run out of cash to pay around 40,000 workers this month, the government on Wednesday decided to place the company into a state fund.

The aim would be to transfer $370 million in government assets to the same state fund to be used as collateral to raise cash to keep the miner going, with the hope of skirting EU competition rules against state aid.

The government also hopes state-controlled utilities and gas distributor PGNiG will chip in to help restructure the miner, but their other shareholders are wary of such a plan and analysts warn it could have wider repercussions for Poland’s investment image.

Trade union Solidarity, the biggest in Poland, said the plan made a “mockery” of miners and society, arguing that it would most likely face opposition from the European Commission, the EU’s executive arm. The union has threatened strikes and plans a protest in front of one of the mines on Monday.

The Law and Justice party (PiS), which is leading in opinion polls ahead of the election, has repeatedly signalled mining jobs should be protected and the sector treated preferentially.

“Those who say today that one cannot save Polish mines, that mining is a declining sector, are not only mistaken, they also have bad intentions,” the party’s candidate for prime minister, Beata Szydlo, said in August.

The ruling Civic Platform has tried to cut jobs in the coal mining sector, which accounts for about 1 percent of industrial output, but watered down its plans after strikes.

The treasury ministry, which oversees the sector, said it plans to close down unprofitable mines and increase efficiency at the remaining ones, the best alternative to a bankruptcy of Kompania Weglowa it is trying to avoid.

“The government is taking all possible action and initiatives to restructure the sector and take it on a path of durable, stable and secure growth in the long term,” it said.

Experts say the government has done too little too late. A government source told Reuters a profitable coal mining sector in Poland would consist of approximately 10 mines, less than half of those currently operating.


Poland’s $535 billion economy was the only one to avoid recession in the 28-member European Union in the aftermath of the global financial crisis. But it still desperately needs investment to keep growing and catch up with the richer West.

Private investors - including domestic and foreign pension and investment funds - hold 40-70 percent stakes in the state controlled energy producers the government hopes will invest in the mine restructuring: PGE, Enea, Energa and Tauron.

Siller said that if the utilities’ cash was used to bail out the mining sector, it would potentially remove what was a positive catalyst for the entire region.

“Countries in former Yugoslavia, Greece, Romania, Belarus, Ukraine would all say - look, if even Poland does not live up to these standards, who would expect it from us?”

Leszek Balcerowicz, who led Poland’s transformation from communism in the 1990s but has struggled to remain in politics because of his pro-market views, told Reuters the coal mines were a “spectacular example” of the drawbacks of state control.

“State ownership tends to be politicised and politicians are not good owners because they tend to avoid to the necessary measures,” he said. ($1 = 3.7985 zlotys) (Editing by Michael Kahn, Justyna Pawlak and Philippa Fletcher)

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